Cash Earning Per Share (EPS) | Formula | Analysis | Example | Calculation

Cash Earning Per Share (EPS) ( Cash EPS)

Cash earning per share also called Cash EPS which is used for measuring the financial performance of the company. Cash EPS provide the real net earning of the business.

Definition: What is cash EPS?

Cash Earning Per Share (EPS) ( Cash EPS)

There are many non-cash items in the financial statements of many companies such as depreciation and amortization. CEPS measuring the strict earning by removing these noncash items.

For a company higher CEPS is better. A company should display his CEPS high. This ratio is important for those companies which have many assets on its books. For the assets, payment occurs in single time and the depreciation charges which apply on these assets depend upon the life of assets. Depreciation charges considre noncash that’s why these charges do not add in the EPS

There are 2 formulas for calculating the cash EPS

Cash earnings per share=operating cashflow/number of shares outstanding

OR

Cash earnings per share=net income+depreciation & amortization x (1-Tax)/num of share outstanding

Due to the inclusion of change in the working capital calculation of both formulas give a different result. From the above to formulas investors choose the first formula for their calculation. For accurate calculation identification of non-cash items is necessary.

Now we take the example of Cash EPS.

Example

There is the financial statement of company A in the following table. Every next year the cash flow of the company increase But cash EPS of company decrease.  The number of the share of company A is increasing because of which profit on cash amount per share decrease.

Analysis and Description

Performance of the company analyzes by the cash EPS. If cash earning per year is high it means that the performance of the company is better. Normally analyst checks the growth rate through this ratio over several years. It is used to compare the companies of the same industry with the same product. Cash earning per share is smarter than the CEPS. It neglects the noncash item and compares the number across different companies.

From the above example, we observe that company use more equity share for expansion of business due to which CEPS reduce. It is for the increase in the number of shares stock but due to this, there is not the increment in the cash flow. For the difference between cash and noncash amount Cash Earning Per Share is the best tool.

For more Financial Ratio Check: 

Break-Even Point Analysis

Capitalization ratio
Cash conversion cycle

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